Bitcoin may have flirted with flying a little too close to the sun, but it hasn’t met a tragic end just yet. Late 2013 will probably go down as bitcoin’s first boom period, where the cryptocurrency’s value had struck an all-time high of $1,200 as of November. Then, for the first time since the mysterious Satoshi Nakamoto created the digital decentralized currency a few years prior, bitcoin looked set to go mainstream in 2014. However, while major companies such as Dell got on board with accepting the currency, its price never again reached those dizzying late 2013 heights.
2015 could have been the beginning of a new frontier for the currency and a fresh slate, but things didn’t get off to a good start. In the first week of January, bitcoin exchange Bitstamp was hacked, the perpetrators making off with more than $5 million in the heist. The exchange suspended operations and was back online by mid-January, but it did little for confidence.
Over the following days, bitcoin’s value fell below $200 for the first time since 2013, before its infamous price surge. It crawled back over the mark again soon after, but the currency has been badly bruised ever since.
In its relatively short history, the cryptocurrency has had to weather storm after storm. The February 2014 collapse of the Japan-based exchange Mt. Gox still looms overhead. More recently, Japanese media have been claiming that it was not hacked, but rather fell prey to an inside job to steal millions from customers. Meanwhile, there’s the Silk Road, whose founder Ross Ulbricht was convicted of several charges related to the online black market, including engaging in a criminal enterprise, narcotics trafficking, money laundering and computer hacking. Silk Road’s currency of choice? Bitcoin.
Bitcoin advocates have much to talk about when trying to tell newcomers that bitcoin is the future of currency and finance, but naysayers and skeptics have plenty of ammunition too when exchanges are hacked, innocent customers lose their money and when it’s the currency of choice for online drug dealers.
With another storm dying down, the question is, can bitcoin and its community mend their reputation in 2015 and get back on track toward that Utopian view of widespread cryptocurrency use that they so desire?
Despite Everything, It’s Still Early Days
“Bitcoin is still experimental so I don’t think ‘recover’ is the correct word because that implies it was an established system already,” says Russ Smith who operates Bitcoin.me and explains that an air of hype over the last year or two created a view that the currency is now failing.
“Two years ago, bitcoin was trading at less than $20. I don’t view bitcoin as [needing] a ‘recovery,’ it just needs to keep chugging along down the path it is on.”
Exchanges like Mt. Gox and Bitstamp have their issues, but these are largely due to inexperienced people running them, says Russ.
“Many people in the bitcoin space are anti-regulation, anti-state, etc. and they often reject established ways of doing business; they just don’t have the resources to implement what is needed, or they are just incompetent.”
Peter Conrad, a German author who has written on bitcoin, believes that 2015 will indeed be a difficult year for the cryptocurrency with even more challenges in the years ahead, but its issues are plenty beyond the obvious ones.
“The most serious problem of bitcoin at the moment is not hacks, it is the expensive mining process,” he says. “We’re already in the situation that miners are turning off their equipment because they don’t break even anymore.”
He explains that the various alternative coins that have emerged from bitcoin can learn from these mistakes and may very well overtake bitcoin in the future.
“It is only a question of time until bitcoin breaks down completely,” he adds. “Not because the general idea of decentralized currencies is bad, but because the experimental bitcoin will be replaced by much better decentralized currencies."
Price Isn’t Everything
For some advocates and users, the price of bitcoin and its exchange rate against the dollar isn’t as important as it’s often made out to be.
“People often mistake the low trading price of bitcoin as a sign of failure. Bitcoin is just getting started,” says Michael Vogel, CEO of Netcoins. “Millions in venture capital has been invested in unlaunched bitcoin startups that are looking to solve the many challenges that still exist in bitcoin.
“Also price is not important when bitcoin is simply being used as a transaction medium. Applications are already being built that use bitcoin as a back-end framework, without customers even knowing that they are interacting with it,” he says.
“I prefer to view bitcoin as a currency (medium of exchange) and not a commodity to invest in,” says Glen Lee Roberts, author of "Bitcoin: A How-to Guide for Small Business." “Hence, I look at the ‘recovery’ of bitcoin not in its exchange rate vs. USD or Euros, but rather in its acceptance by merchants and use by consumers (and businesses) for their purchases. I think in 2015 bitcoin is well on track to success in those realms.”
KPMG recently published a new report, The Changing World of Money, which looked at the threat and instability of bitcoin, but also the opportunity it provides.
While KPMG acknowledges the wild price jumps suffered by bitcoin, it isn’t quick to condemn the currency to being a failure.
“It would be wrong to write it off just yet,” says the study. “It’s just in its infancy and will grow. With its open architecture it could develop into something very interesting.”
A huge institution like KPMG can give bitcoin some more credibility — and perhaps more importantly, visibility — to the non-tech savvy. The adoption of bitcoin by this group of people will be vital in its mainstream uptake and most recently, KPMG became the first of the “Big Four” audit firms to officially accredit a bitcoin company, the custodian bank Elliptic Vault.
“We think it’s important that the services we offer in the digital currency space are held to the same standards as those operating in more conventional markets,” said Elliptic Vault on receiving the accreditation.
What will push greater adoption?
While high-profile hacks like Bitstamp are occurring seemingly regularly, and they do indeed make for the worst headlines for bitcoin’s image, hacking and security is not the main issue afoot, according to some experts. Rather, the goal is wider use and acceptance.
According to a survey from Software Advice, 25% of consumers said they would likely use a digital currency if it became widely accepted. Only 23% of SMBs said they are moderately to very prepared to accept digital payments and half were “not at all prepared.” Finally, 55% of SMBs were not confident their accounting software could accommodate integration with digital currency.
Growing mainstream attention will certainly help in garnering attention for the cryptocurrency when it needs it the most. Arguably the biggest bitcoin startup, Coinbase, raised a significant investment of $75 million in January, the largest any bitcoin company has ever gathered to date.
Finally, while bitcoin had its slumps in 2014, it was also the year where academic research into cryptocurrencies boomed, meaning bright minds are working towards solutions.